Study Notes on Economic Growth Around the World

Principles of Macroeconomics

International Monetary Fund (IMF) provides Purchasing Power Parity (PPP)-adjusted GDP data for 194 countries categorized into:
- Advanced Economies (AE)
- Emerging and Middle Income Economies (EME)
- Low Income Developing Countries (LIDC)
Table 10.1 illustrates the distribution of world GDP as of 2020:
- Advanced Economies contribute over 40% of world GDP.
- China has emerged as the largest economy, with a GDP nearly four times that of Japan, the third-largest economy.

Number of Countries: 194
- Total GDP: 100.0%, Per Capita (PPP): $17,317
- Advanced Economies: 39 countries, 42.3% of GDP, Per Capita: $52,182
- Major contributors:
  - United States: 15.7% of GDP, Per Capita: $63,078
  - Japan: 4.0%, $42,075
  - Germany: 3.4%, $54,993
  - United Kingdom, France, Italy, and others with respective percentages and GDP per capita values.
Emerging and Middle Income Economies: 96 countries, 52.8% of GDP, Per Capita: $13,844
- Notable economies include:
- China: 18.2%, $17,115
- India: 6.8%, $6,525
Low Income Developing Countries: 59 countries, 5.0% of GDP, Per Capita: $4,309
- Breakdown across regions indicates substantial differences in economic output and living standards.

Figure 10.2 illustrates income disparity across countries:
- Higher-income nations dominate the northern hemisphere, with notable exceptions (e.g., Australia and New Zealand).
- The North-South problem refers to the observed income disparity between wealthier northern countries and poorer southern countries.

Table 10.2 summarizes global population distribution in 2020:
- 14% of the world's population resides in Advanced Economies.
- Nearly 20%, or 1.5 billion people, live in LIDC countries.
- Over 66% of the global population (approx. 5 billion) resides in EME, with the majority in India and China.

Listing of countries, populations, their corresponding share of the world population, and GDP per capita, illustrating discrepancies between groups.

Recent decades have seen rapid economic growth in:
- China and India, each housing a substantial portion of the global population.
- Sub-Saharan African countries like Ghana and South Africa, showing improved economic performance and poverty reduction.

The growth accounting formula for productivity growth rate is as follows:
- ext{productivity growth rate} = ext{growth rate of capital per hour of work} + ext{growth rate of technology}
The catch-up line reflects the relationship between the level of productivity and its growth, suggesting that poorer countries typically grow more quickly than their richer counterparts. Figure 10.4 exemplifies this relationship with a downward slope.

Figure 10.5 presents evidence showing:
- Southern states (e.g., Florida and Texas) exhibit higher growth rates.
- States with historically high per capita incomes (e.g., Montana and Nevada) experience slower growth.

Figure 10.6 highlights the downward trend among advanced industrial countries (1960-2019):
- Richer nations like the USA exhibit slower growth compared to emerging economies like Korea and Singapore.

Figure 10.7 emphasizes significant growth in East Asia, particularly in:
- China and South Korea, which have realized substantial increases in per capita GDP since 1980.

Figure 10.8 indicates minimal catch-up trends among many developing countries from 1980-2019.

Key factors include:
- The role of institutions
- Geographic considerations
- Openness to international interactions
- The presence or absence of conflict

Capital investment necessitates saving, primarily derived from national savings and foreign investments:
- Foreign Direct Investment (FDI) defined as investment with at least a 10% direct ownership share.
- Portfolio investment is defined as investments with less than 10% ownership shares.

Countries can leverage various financing sources, including:
- Commercial banks (e.g., Bank of America, Mizuho)
- International agencies like the World Bank and IMF, which facilitate economic development and stability.

The emergence of an informal economy is attributed to excessive regulation.
- Informal economy refers to sectors characterized by unregulated and illegal businesses.
The term peace dividend describes benefits gained from post-conflict scenarios aiding in capital accumulation, with Colombia, Rwanda, and Vietnam as instances.

To achieve increased capital per worker, investments must outpace population growth. High population rates may impede the growth of capital per worker.

Productivity enhancement stems from:
- Increases in capital per worker
- Technological advancements
Limitations on technological growth in poor economies stem from insufficient resources for development.

The Industrial Revolution catalyzed growth through entrepreneurial freedom, particularly observed in Holland, the UK, and USA during the 1700s. Entrepreneurs achieved unprecedented opportunities for market-driven innovations.

Developing nations often emulate successful technologies from wealthier nations and seek foreign investments to bridge the technology gap. This imitation can occasionally be facilitated by lacking strict intellectual property protections.

Viewing a video demonstrating crucial elements of national growth: predictable policy, rule of law, incentives, market reliance, and limited government role.

Economic growth theory identifies capital accumulation and technological advancements as core growth drivers. While some regions demonstrate substantial catch-up, many developing nations lag significantly, struggling due to challenging socio-economic conditions and population dynamics.
Strategies for improving outcomes include:
- Attracting foreign investments
- Addressing population growth
- Fostering education and skill development for technological advancement.